NeighborWorks Capital led discussions at the NeighborWorks Training Institute Real Estate Developers Convening—the premier event of the year for NeighborWorks affiliates to share ideas, successes, and challenges with their peers—held in Cleveland February 21-22, 2019. During his breakout session, our Chief Lending Officer Steve Peelor talked about flexible enterprise financing for homebuilders. Here are some key takeaways from his talk:
MIND THE GAP. Often organizations find themselves stuck—particularly in rural areas—when appraised values are lower than the cost of building, because lack of new development means there are only low-value comps in the area. One way to resolve the gap is by building middle market homes that serve a moderate income population that can then help pull up the home values of the lower priced homes by creating comps. This also diversifies a builder’s portfolio.
BUILDING TRUST REQUIRES EXCHANGING KNOWLEDGE. When it comes to enterprise financing, it’s important for developers and lenders to be very clear early on in the process about what info is needed and why. Being willing to do additional reporting is the tradeoff for unsecured lending—but it’s also important that lenders make clear why they want all this data. When lenders make the value of the data clear, reporting requirements seem less burdensome.
DEFINE “ENTERPRISE CAPITAL.” This can be a fuzzy term. To us, it’s financing for your organization to use freely, meaning it’s yours to use as you wish once it’s dispersed. “The metaphor I use is a car,” Peelor said. “Your business is the engine in the car, money is the fuel, and your management team does the steering. But having a car isn’t much use if any time you use it, you can only put in just enough gas to get where you are going. Having the money in hand has a price, but it gives you the freedom to do things.” He also noted that this kind of capital is not for emergencies.
Want more? Check out the deck from this session.